There Is a Flexible Exchange Rate System and Only Two

question 42

Multiple Choice

There is a flexible exchange rate system and only two countries in the world,the United States and Mexico.The real interest rate in the United States rises relative to the real interest rate in Mexico.It follows that

• A) the dollar will depreciate and the peso will appreciate.
• B) the peso will depreciate and the dollar will appreciate.
• C) both the peso and the dollar are likely to appreciate.
• D) both the peso and the dollar are likely to depreciate.

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